Dunlop Pneumatic Tyre Co Ltd V New Garage PDF

Preview

Summary

Exams Notes...

Description

Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd [1915] AC 192 Date: 1914 July, 1 Judges: Lord Dunedin, Lord Atkinson, Lord Parker of Waddington, Lord Parmoor Court: House of Lords Appellants (Plaintiffs): Dunlop Pneumatic Tyre Company, Limited (Younger, K.C., and Disturnal, K.C. for the appellants) [with them Kingsbury] Respondents (Defendants): New Garage And Motor Company, Limited (McCall, K.C. and Morton Smith for the respondents) Procedural History: King’s Bench Division (Phillimore J., sitting without a jury): -Granted injunction and directed an inquiry as to damages to be held before a Master (Examining witness). -The Master assessed the damages at 250l, and found that he could decide whether the 5l fixed in the agreement was penalty or liquidated damages  found that it was liquidated damages. -Directed the costs of the reference to be paid by the respondents. Court of Appeal (Vaughan Williams and Swinfen Eady L.JJ., Kennedy L.J. dissenting): Respondents (New Garage) appealed to the Court of Appeal -Reversed the finding of the Master -the 5l fixed in the agreement is a penalty -plaintiffs were entitled to nominal damages only (for the sum of2l) -directed the costs of the reference to be paid by the plaintiffs House of Lords (Judges listed above): -Reversed the decision of the Court of Appeal Facts: The appellants were manufacturers of motor tyres, covers and tubes. They allowed trade purchasers certain discounts off the list prices of the goods and in return insist to enter contracts with the purchasers in order to prevent underselling. Under the contract, the purchasers agreed not to sell to private customers at less than list prices or to trade customers at less than list prices after deducting certain discounts. They also agreed to act as agents of the appellant and insist sub-purchasers on signing the above mentioned agreement.

Oct, 1910 A. Pellant, Limited entered into a contract with the appellants. Apr 1911 Respondents purchased tyres, covers and tubes of the appellants manufacture  signed “Price Maintenance Agreement to be entered into by trade purchasers of Dunlop Motor Tyres”, dated April 7, 1911. Full agreement can be found on page 80-81 (5) We agree to pay to the Dunlop Pneumatic Tyre Co, Ltd., the sum of 5l for each and every tyre, cover or tube sold or offered in breach of this agreement, as and by way of liquidated damages and not as a penalty, but without prejudice to any other rights or remedies you or the Dunlop Pneumatic Tyres Co., Ltd., may have hereunder. May 4, 1911 Respondents sold Motorists’ Mutual Co-operative Society a tyre cover at 3l. 12s instead of 4l. 1s Appellants’ local agents lost their business & were obliged for their own protection to resort to other firms. Appellants commenced an action against the respondents for an injunction and damages. Appellants’ argument: 1. There is nothing unreasonable for fixing by agreement a sum to be paid as liquidated damages for future breaches, where the amount of damage likely to accrue cannot be accurately ascertained or foreseen or is difficult to proof. 2. The test is whether the stipulated sum is a genuine pre-estimate of the probable damage (Public Works Commissioner v Hills) 3. Clause 5 of this contract the 5l relates only to a breach of clause 2 4. In the case of a single stipulation, varying breaches might cause varying damages, providing that the sum is not unconscionable, it is not suggested that in that case the sum agreed upon might not be liquidated damages  contract containing several stipulations doesn’t make a difference. Respondents’ argument: 1. The contract interferes with principle “ that where the contract contains a variety of stipulations of different degrees of importance, and one large sum is stated at the end to be paid on breach of performance of any of them, that must be considered as a penalty.” (established in Kemble v Farren, described by Lord Coleridge in Magee v. Lavell) 2. Upon the construction of this agreement the sum of 5l applies to all the foregoing clauses and therefore covers matters of different importance  amount of

damage in any of the cases covered by this stipulation is so small that the agreed sum would be an inordinate amount sum ought to be regarded as penalty. 3. The dissatisfaction of the appellants’ agents and them dealing elsewhere are not the direct and natural consequences of the breach of this agreement. And they are not admissible in evidence on the question of damages. 4. Pre-estimate must be one that is made by both parties 5. It must be shown that the respondents had knowledge of the consequences the breach of contract would have upon the relation of the appellants and their agents. Appellants in reply: It is open to the parties in every case to make a genuine pre-estimate of damages. The Court will regard the stipulated sum as liquidated damages provided it doesn’t exceed the probable maximum damage which would occur in any particular case. Lord Dunedin: -summaries of propositions by authorities p.86-88 1. The case was tried and the breach in fact held proved 2. The damage apprehend by the appellants owing to the breaking of the agreement was an indirect damage.  one of those cases where it seems reasonable for parties to contract that they should estimate that damage at a certain figure, unless the number is extravagant  no reason to suspect that is not truly a bargain to assess damages. 3. Since the mischief is an indirect one, the seriousness of the consequences of the breach of different stipulation is similar. 4. Elphinstone’s case: if you can clearly see that the loss on one particular breach could never amount to the stipulated sum, then you may come to the conclusion that the sum is a penalty. HOWEVER, according to reason 3, the present case doesn’t form an instance of this statement. 5. Rigby L.J. in Willson’s Case “…When the damages caused by a breach of contract are incapable of being ascertained, the sum made by the contract payable on such a breach is to be regarded as liquidated damages.” -the present case is an indirect mischief  no rule or measure of damages is available supposing no sum had been stipulated  the judge have had to do so 6. Willson v. Love distinguished. (The party there had said “penalty”, also fixed sum>known ascertainable quantities as at the time of the bargain.) Appeal allowed, judgment of Phillimore J. be restored. Appellants have their costs in the House of Lords and in the Courts below

Lord Atkinson: 1. Sole question for decision on this appeal: whether this sum of 5l is a penalty or liquidated damages. 2. These agreements are styled price maintenance agreements, and their main purpose is to prevent the sale to the public, the users, either directly or indirectly, of the goods the appellants manufacture at prices less than those named in their price lists. 3. Therefore the object of the appellants in making this agreement is to prevent the disorganization of their trading system and the consequent injury to their trade in many directions. 4. Appellants had an obvious interest to prevent this undercutting  impossible to say that that interest was incommensurate with the sum agreed to be paid. 5. Penalty because of the different importance of the different stipulations? : this presumption is rebutted by the fact that the damage caused by each and every one of those breaches, however varying in importance, may be such of an uncertain nature that it can’t be accurately ascertained 6. The sum of 5l was not stipulated for merely in terrorem, but was genuinely a preestimate of the appellants’ probable/possible interest in the due performance of the contract. Judgment of Phillimore J. be restored, appeal allowed with costs. Lord Parker of Waddington: 1. Where the damages which may arise out a breach of contract are in their nature uncertain, the law permits the parties to agree beforehand the amount to be paid on such breach. Liquidated damages/penalty?  Depends on the circumstances of each particular case. 2. Single sum I agreed to be paid on the breach of a number of stipulations of varying importance: (a) Damage likely to accrue from each stipulation is the same in kind  analogous to those of a single stipulation (b) Cases in which the damage likely to accrue varies in kind  Prima facie presumption or inference is against the parties having preestimated the damage, even though the sum payable is referred to as agreed or liquidated damages. 3. Even the construction of the contract which makes clause 5 apply not only to a sale or offer contrary to the provisions of clause 2, the damage likely to accrue

from the breach of every stipulation to which clause 5 applies is the same in kind. Lord Parmoor: 1. The question to determine is the construction of this agreement 2. There has been a difference of opinion whether the sum of5l is applicable only to a breach of the conditions contained in paragraph 2 of the agreement or extends to a breach of other conditions not contained in this paragraph. 3. There are 2 instances in which the Court would rule the agreed sum as penalty: (a) The fixed sum is extravagant or unconscionable in relation any possible amount of damages that could have been within the contemplation of the parties at the time when the contract was made.  Present case: the agreed sum cannot be said to be extravagant or extortionate (b) In the case of a covenant for a fixed sum, or for a sum definitely ascertainable, and where a larger sum is inserted by arrangement between the parties, payable as liquidated damages in default of payment.  Present case: this limitation is not applicable 4. Conclusion: in the present case there is no question of extortion or of giving a larger sum as liquidated damages for a fixed or ascertainable sum

Final decision: Order of the Court of Appeal reversed, order of Phillimore J. restored. The respondents to pay the costs in the Courts below and also the costs of the appeal to this House. (House of Lords)...